Why Added Value May Cost You Dearly

by Sharon Day,posted Jan 22 2013 8:45AM

While each of us should be adding value to our relationships in some way every day, let me be clear about the difference between adding value and added value.

Adding value is when you take the unprovoked initiative to be of additional help or service to someone else. This takes many forms and may include referring business, writing a recommendation, and/or connecting others who may have enough synergies to form a strategic alliance. In other words, being someone who is constantly thinking of ways to help others grow and realize greater success.

Added value is the stuff that gets added on to deals, at low or no additional cost, to incentivize purchase. Whether you agree with me or not, I believe most advice given out to prospects in the hopes of proving credibility falls into this category as well. Therefore, should you employ a tactic of including added value, do so with extreme caution and precise strategy.

Remember, something given away for free is likely perceived as worthless; things provided at low charge are likely perceived as almost worthless. The following examples are offered to prove this point and illustrate how added value tactics can backfire by becoming long-standing practices that are now expectations.

The mathematical expression for the absence of value is zero. Every time you provide something that has a $0 noted in the cost column, you put yourself at risk; and, there’s a strong probability that over time you and your team will also believe the item has no value. So, even if your plan is to offset higher priced inventory and bring the order in at a pre-determined market cost, once you sell some of your inventory at $0 to a customer, it will forever be sold at no or low charge. Why would they ever pay full price or a premium for it? The result, your team will need to maintain higher rates on your remaining inventory to generate profit.

Here are some key questions to ask before including added value:
What do I think/believe will be the result of adding these items? What led me to that belief? What might happen if I don’t add anything? What might happen if I promise this quantity at no charge and can’t deliver? How does my adding these items affect the profitability of the order? Are other clients purchasing from us without these added items? If I cut the number of planned freebies in half would they still purchase? How much do I really need to include? How might these gradually be phased out?

That leads us to the strategy conversation. Anyone who has ever run a business knows that there can be compelling reasons for providing something at no or low cost. And, we understand the importance of ensuring that doing so results in a positive impact for our business and our customers that doesn’t have negative long-term consequences. That requires purpose, forethought and planning.

If you have items that are slow sellers and/or product that spoils, you might decide to use those as loss leaders to help drive sales elsewhere. If your business model is one of high volume, your rates may have to remain low to stay competitive. Entrepreneurs may decide to initially offer their products and services at lower rates to generate clientele and much needed capital. There are a myriad of other sound business reasons to provide added value, and with each a specific plan should be crafted that answers how many can we afford to give? How often? At what rate? For what period of time? Always include a specific end date with these offers.

Be sure your sales team is well aware of your pricing strategy, including any thresholds or ranges you’ve established. For the sake of protecting your business, they must know what they are permitted to include and the lines they cannot cross and they must be willing and able to walk away when asked to cross those lines.

Now more than ever it’s critical to have a sales and pricing strategy in place to ensure that your business is presented properly and profit goals are protected. It’s equally critical to have the right team of sellers who buy in to your strategy, have belief in your product’s value and the courage to stand firm on price, where needed. We have found that pricing concessions are always made in the absence of having either a sound strategy and/or the right team.